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Chapter 3: Internal and External Institutions and Influences
Transcript of Chapter 3: Internal and External Institutions and Influences
• is a body of elected or appointed by shareholders who jointly oversee the activities and the overall managerial and operational aspects of the corporation.
• Made up of individual men and woman, the "directors" who are elected
by the shareholders.
Board Of Directors
Structure and Makeup of Board of Directors
• Is responsible in making sure that the company's financial statements and reports are reasonably accurate and use fair estimates in accordance with the applicable financial reporting standards.
Committees on the Board of Directors
Chapter 3: Internal and
External Institutions and
Influences of Corporate
Authority and Responsibility
and Purpose of the
Board of Directors
• Protect the resources entrusted to them by the
shareholders' and make sure the latter receive a
decent return on their investment.
• Top governing authority within the management
structure at any publicly listed company.
• Their job is to select, evaluate, and approve appropriate compensation for the company's chief executive officer (CEO)
• Assess the attractiveness dividend payment scheme and its amount.
• Recommend the stock splits.
• Oversee share reacquisition programs.
• Approve the company's financial statements reports and other financial highlights.
• Recommend or in some instances discourage acquisitions and mergers.
• In most cases, directors either;
1. Have a vested interest in the company.
2. Work in the upper management of the company.
3. Are independent from the company but are known for their business abilities.
• places the base compensation, stock option awards, and incentive bonuses for the company's executives, including the CEO.
Ownership Structure and Its Impact on the Board of Directors
• The particular ownership structure of a corporation has a huge impact on the efficiency and effectiveness of the board of directors to govern.
• In a company where a large, single shareholder exists, that entity or individual investor can effectively control the corporation.
Chief Executive Officer (CEO)
• Is usually the singular organizational position that is principally accountable in carrying out the strategic policies and procedure as established by the board of directors.
• Is directly under the board of directors, and thus presents its reports and output to board.
• To bring into line the company, internally and externally, with their long-term vision.
• To make possible to engage business outside the company while directing employees, managers and other executive officers towards a central objective.
Support the Board
• Supports operations and administration of the board by giving information and advice to board members.
Delivery of Program, Product and Service (PPS)
• Administer design, marketing, promotion, delivery and quality of programs, products and services.
Financial, Risk and Tax Management
• Recommends yearly budget for board's approval and cautiously manages organization's resources within the bounds of the budget guidelines.
• This utilization of resources may also have other basis such as laws, regulations, and other directives.
Human Capital Management
• Efficiently manages the human capital of the organization based on sanctioned personnel policies and procedures that fully conform to current laws, regulations, and standards both local and international.
Public Relations (PR)
• Pledge that the organization and its mission, programs and initiatives, products and services are consistently presented
in strong and physically visible manner to the community.
Chief Financial Officer (CFO)
• Will be the one responsible for the conveying the important financial controls to a company.
• Handles and supervises those projects that require significant quantitative and qualitative interpretations and analysis in order to reach at an understanding of the options that are available.
• Institute good working relationships with banks and other financial institutions that may impact on the company's ability to finance its operations.
• An important member of the management team of some emergent companies.
• Expected to take part in important role of attending some major strategic issues that will have an impact on the company's long-term future.
• Best position to foresee risk considering that they have this rare perspective on how the company operates.
• Is the nucleus in an organization with many connections.
• Needs to demonstrate impartially, such as when advising the CEO or the board of directors on accounting matters.
• Gives the owner with the right to a share of the income of the company called dividend and a right to a share of net proceeds on the sale during liquidation of the company.
• Includes the right to sell transfer that share without the need to inform or getting the consent of the other stockholders.
• An important right and responsibility of the shareholders is to vote.
Responsibilities of the Shareholders
• They must ensure that the obligation to provide information to shareholders does not detract from the company's ability to compete in its marketplace.
• They must ensure that their right to attempt to influence the company does not translate into behavior that will paralyze and detrimental to the company.
Fundamentals that Require the Approval of the Shareholders,
Under the Corporation Code of
the Philippines, Include;
• Effecting certain merger or reorganizations.
• Selling all or substantially all of the corporation's assets.
• Adding or removing any restrictions on the business that the corporation may carry on.
• Changing the corporation's share capital.
• Increasing or decreasing the number of directors or the minimum or maximum numbers of directors.
• Confirming by-laws.
• Adding or changing restrictions on the issue, transfer or ownership of shares.
Shareholder Ability to
Change the Board
• Shareholders who are dissatisfied with how the directors are running the corporation may remove the directors or refuse to re-elect them.
• In practice, this may be a difficult course to take, particularly where the shares of the corporation are widely held.
External Environment of Corporate Governance
• One of the most important external institutions in governance.
• Their job is to help to ensure that firms are run efficiently by keeping public records accurate, adhering standards of reporting for public purposes, and taxes paid properly and on time.
• Independent auditors analyze and communicate financial information for various entities such as companies, potential investors, individual clients, government both at the local and national level.
• They may also engage in consultancy services which may include, financial and investment planning, information technology consulting, and limited legal services.
• Some independent auditors and public accountants specialize in forensic accounting investigating and interpreting white-collar crimes such as securities and fraud and embezzlement, bankruptcies and contract disputes, and other complex and possibly criminal financial transactions, including money laundering by organized criminals.
• Some contend that it is the market that can really press real governance considering that it is a variable independent from anybody.
• There are, however, some limits to this connection.
• Markets may be good for some governance tasks, weak for others.
• Markets may be good at limiting some types of "skirting", but be less good at limiting "stealing", especially if the stealing represents a small part of the firm's total value.
Legal Environment has Three
• The domestic laws of home countries.
• The domestic laws of each of foreign markets.
• International law in general.
• Considered the most important institution of corporate governance.